‘Lying and Gouging’: Gov. Newsom Unveils Plan To Cap Oil Refiners’ Profits

By Eliyahu Kamisher, THE MERCURY NEWS

Gov. Gavin Newsom on Monday unveiled his plan to punish oil companies for reaping massive profits in California while drivers emptied their wallets at gas stations.

The plan, which Newsom termed a “price gouging penalty,” would see the state establish a maximum profit margin on oil refiners and issue civil penalties for excess profits. Any revenue generated would be put into a “Price Gouging Penalty Fund” and sent back to Californians.

But Newsom’s proposal leaves blank the key sticking points, including the specific profit ceiling and penalty rates. Those questions will be central to a heated debate in Sacramento this winter that will test the newly seated Legislature’s resolve in opposing one of the state’s top lobbying interests.

“California’s price gouging penalty is simple – either Big Oil reins in the profits and prices, or they’ll pay a penalty,” Newsom said on Monday. “Big Oil has been lying and gouging Californians to line their own pockets long enough.”

The governor’s push comes as voters in recent weeks, with fuel costs tumbling below $5 per gallon for the first time since March.

Newsom called a special legislative session that began Monday, which allows lawmakers to move more quickly on passing a plan. The session will get fully underway in January alongside the normal session of the Legislature.

Oil industry and consumer advocates are already waging a over whether the state’s oil refiners are “gouging” drivers or are actually suffering under California’s transition to renewable energies and whether a profit cap will save drivers money or make gas supply shortages increasingly common. Both sides are playing politics over whether Newsom’s plan is a “penalty” or a new “tax.”

“Despite how this may be characterized as a ‘penalty on oil companies’ it is clearly a tax that will disincentivize investment, cut supplies and increase costs for all Californians, at a time when they can least afford it,” said Robert Gutierrez, co-chair of a coalition of business interests called Californians Against Higher Taxes, which opposes the plan.

Experts backing the oil industry say high profits are necessary to sustain an industry that saw its margins collapse during the COVID-19 pandemic.

But consumer and environmental advocates point to record profits among major oil companies in California that produce the state’s gasoline, with margins that are higher in California than in other parts of the country. In a letter on Monday, a collation of advocacy groups said the state should impose a cap once profits reach 50 cents a gallon. They said such a measure will “save consumers billions of dollars in overcharges.”

“Other countries, particularly throughout Europe, have not been shy about imposing windfall profit taxes on energy companies to raise billions of dollars to help society’s most vulnerable,” the advocates, including Consumer Watchdog wrote. “It is time for California to do the same and create a model for the nation.”

California’s average gas prices peaked in June at $6.44 a gallon in tandem with surging prices around the country sparked by Russia’s invasion of Ukraine. But in September, California saw while prices dropped elsewhere, creating an unprecedented $2.61-price gap between what drivers in the Golden State pay vs. the rest of the country. 

Newsom’s proposal would also bolster state energy regulators’ ability to provide oversight after years of criticism from experts who say California has woefully little power over an industry that closely guards information on pricing and operations as confidential trade secrets.

All sides agree that environmental fees, taxes, isolated fuel markets and special fuel blends are at least partly to blame for California’s highest-in-the-nation gasoline costs. But Severin Borenstein, an energy economist at UC Berkeley, has identified a bedeviling gap in the cost of California’s gasoline compared to the national price, which is not accounted for by the state’s higher fees and environmental regulations.

Prior to the most recent price spike, that gap, which Borenstein calls a “mystery surcharge,” was typically 30 cents a gallon. It has been at the center of multiple inconclusive state investigations.

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